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Prevention of Social Housing Fraud Bill

Volume 741: debated on Friday 30 November 2012

Second Reading

Moved By

My Lords, there are around 4 million social homes in England and more than 200,000 in Wales. These homes provide safety and security, allowing roots to be put down and families to flourish. Social tenants enjoy a comparatively high level of statutory protection and, of course, benefit from submarket rents. In some parts of the country, social rent is less than 50% of the market rent. In addition, many social homes can ultimately be purchased by the tenant at a substantial discount under the right-to-buy scheme. It is therefore unsurprising that there is such a high level of demand for these homes: almost 2 million households are on the waiting list, many of whom are living in accommodation that is completely unsuited to their needs.

At the same time, some people are cheating the system. Whether it is by subletting a home they have been allocated or by lying about their circumstances to be allocated one in the first place, they are depriving of a settled home those in genuine need who play by the rules. Earlier this month, the Audit Commission revised upwards its estimate of the number of social homes in England that are being unlawfully occupied. That figure now stands at 98,000. I should of course remind the House that the vast majority of social tenants play by the rules and are no doubt as appalled as everyone else by this abuse.

The Prevention of Social Housing Fraud Bill has a very simple aim: to reduce the amount of social housing that is being misused, thereby ensuring that more of it is available to those in genuine need and who play by the rules. It seeks to do this by increasing the deterrent to those considering cheating the system and by strengthening the ability of landlords to detect and punish those who do. I congratulate Richard Harrington MP both on introducing this important Bill in the other place and on ensuring its rapid progress there, which I know was helped greatly by the generous support given by the Opposition.

Over the past few years, social landlords have been encouraged, both by this Government and the previous one, to crack down on the abuse of their stock. It is pleasing that an ever-increasing number are doing just this. However, while it is perfectly reasonable to expect social landlords to tackle this abuse, it is essential that there is legislation in place that will both help and encourage them to do so. That is where the Bill comes in.

This is not the time to go through each clause of the Bill in detail, but I will very briefly highlight its main provisions. Many forms of social housing fraud are already criminal offences: fraudulent right-to-buy applications and lying on the form when applying for a social home are caught by existing criminal legislation. However, there is a gap when it comes to what is often perceived to be the most prevalent form of social housing fraud: subletting. It is very important that this gap is filled.

A subletter can earn very substantial amounts of money, often by continuing to pay social rent to their local authority or housing association landlord while charging the subtenant the market rent. In areas where there is a big difference between social and market rents, it is not unusual for a tenant to make many thousands of pounds a year, all of it hidden from the tax man. As the Second Reading debate in the other place made clear, subletting is a problem even in low-rent areas.

In the vast majority of cases currently detected, the subletting tenant simply has to hand back the keys, resulting in the loss of a home that they were not living in anyway. They walk away, often with a very tidy profit and nothing to deter them from trying their luck somewhere else. The Bill deals with this by creating new criminal offences of subletting without permission, as well as enabling a court to award to the landlord any profit the tenant has made from the subletting, regardless of whether the landlord has incurred a loss.

The other area is access to data. Landlords often cite their lack of access to data as a significant obstacle that prevents them recovering as many homes as they otherwise could and they compare the powers available to them with those available to their housing benefit counterparts, who can compel a long list of organisations to provide them with data in connection with their investigations. By contrast, social housing fraud investigators cannot compel anyone to supply them with data. As a result, they are able to detect and prosecute far fewer cases than they otherwise could. Both forms of fraud come at a considerable cost to the taxpayer and it is not right that there is such a difference in the powers available to detect them.

The Bill would rectify this imbalance by allowing the making of regulations that would give social housing fraud investigators similar powers to those currently enjoyed by housing benefit investigators. These regulations will be subject to affirmative resolution. Importantly, this Bill will not affect tenants' current rights to take in lodgers or to sublet part of the property, provided that the tenant lives there too. In some cases this is a statutory right, in others it is a common feature of the tenancy agreement. I should add that the Bill would not criminalise those tenants who sublet not knowing it to be against the rules and would not criminalise those who unwittingly rent a social home from the tenant.

Discussions with landlords have shown that often subtenants do not know that the home in which they are living is in fact a social home. If, as can happen, they have seen the property advertised by an estate agent, have put down a deposit and pay market rent then it is fair that they would assume they are renting from a private owner. The first time many realise that the home they are renting is in fact a social home is when the local authority or housing association landlord knocks on their door. As I hope I have made clear, this is not an attack on social tenants, most of whom I am sure would welcome this Bill. What it seeks is to bring about a fairer system, rectifying the anomalous situation where the incentive to cheat is so much greater than both the risk of detection and the eventual penalty incurred.

This is a Private Member's Bill, but it does contain some significant provisions that will be welcomed by the housing sector and, no doubt, by the taxpayer. I hope the wide support it has received up to this point will continue in this House. I do not claim this Bill to be the single answer to all the issues affecting social housing in this country, but it will undoubtedly ensure that more of it is used by those in genuine need.

My Lords, I first congratulate my noble friend Lady Eaton on bringing the Bill to this House, her presentation of it, her clear explanation of its basic contents and the balanced way in which she put it forward. I join her in thanking Richard Harrington for introducing the Bill in the House of Commons and welcome the Government’s support. There is every likelihood that it will come into law.

In one sense, it is quite extraordinary that in so many cases councils and housing associations do not know who is living in their houses and that this clear misuse and abuse of the system of what we now call social housing in this country is so prevalent. It may well be that the true figure is around 100,000. Nobody knows exactly, but it is fairly clear that it takes place on a wide scale. I think back to the days when I started getting involved in local government and how the world has changed. Forty years ago, it would have been almost impossible for this kind of fraud to take place because the local authorities, who then owned almost all the social housing, simply knew who was living in their houses and what they were doing. Before local government reorganisation, when a council house became empty in one of our local authorities—a small urban district of which I was not a member—then its housing committee, consisting of all the authority’s members, would sit round the table at its next meeting and decide who would get the tenancy of that council house.

This is clearly a world away from the present circumstances in which local authorities and housing associations in particular are large-scale organisations run in what some people might think is a bureaucratic way. They are run much more like a business, rather than as the local community-based organisation that we looked to in the past, when everybody knew exactly what was going on. The world has changed. Now local authorities and housing associations do not generally employ rent collectors. In the days when the rent collector went round every week, it would be impossible for this kind of fraud to take place. It is often similar with repairs. When repairs are ordered now, they are either done by a large-scale organisation employed directly by the landlords or often by outside contractors. There is not the local knowledge there was when one or two tradesmen directly employed by the authority went round the estate or a local area doing the repairs. Again, these people would know who the tenants were. Councillors representing much smaller wards in those days would also be able to keep an eye on this kind of thing.

I come from an area where I do not think that this type of fraud takes place on any sort of scale. I was trying to think of an instance in my ward in either the main housing association in the area, which looks after the former council housing, or one of the other housing associations which have small numbers of properties in the area, but I do not think that this kind of fraud takes place on any scale at all in that kind of area. However, rents are generally low in both the private sector and the social housing sector in such areas and there is not the great gap in the level of rents described by the noble Baroness, Lady Eaton, that exists, for example, in many parts of London. However, it is clear that in many parts of the country this kind of fraud is rife, and the Bill is welcome as a means of dealing with it.

There is a hope that the Bill will not need an extended Committee stage; it is in a good form and could be passed into law fairly quickly. That is the hope around the House and I would like to ask the Minister, when she speaks from the Government’s point of view, what they will do if and when this Bill becomes law.

First, it is clear that a fundamental part of this legislation will be the need to inform and advise tenants about exactly what they can and cannot do and about the important distinction between their right to take in lodgers and their non-right—and the fact that it will be illegal—to sublet without permission following the passing of this Bill. It is very important that people occupying social housing legitimately understand the difference between those two positions because it might not be too obvious to people who do not go into the details of the different legislation. We do not want to discourage people in council and other social housing from taking in legitimate lodgers, which is a perfectly proper and reasonable way of using accommodation to its full and of providing accommodation for people who need it and who otherwise might not have it.

Secondly, what will happen in circumstances where people, whether or not they know about the rules, contravene the new legislation by not asking for permission to sublet but, if they had asked, it would have been granted? It would be wrong if they were to be arraigned before the courts. It is a typical situation in planning legislation and planning control that people often carry out development or changes of use without asking for permission, but when complaints are made and the enforcement process goes into operation it becomes clear that if they had asked for permission they would have got it. There is a parallel here and it would be wrong for people to be arraigned before the courts and action taken against them if they would have received permission. In other words, what advice will be given to local authorities for retrospective permission to be given when it would otherwise have been thought to be reasonable?

Thirdly, if and when this legislation is passed—which we hope will be soon—what is the Government’s intention on commencement? Is it that commencement orders will be made fairly quickly and advice given to local authorities and social landlords so that the new system can be brought into operation? Perhaps the Minister will give an assurance about that.

Some of the MPs who took part in the debate in the House of Commons were a little optimistic about the extent to which this legislation will release a great deal of new council and social housing for people on waiting lists. It will clearly have some effect there but the real effect will be that it will stop people abusing the system and bring this housing back into the use for which it is intended. On that basis, I am pleased to support the legislation.

My Lords, I congratulate the noble Baroness, Lady Eaton, on taking on responsibility for this Private Member’s Bill and for the comprehensive manner in which she introduced it. It is understood that the Bill has the continuing support of the Government and it should also be clear from its consideration in another place that it has our support also. I was pleased to hear from the noble Lord, Lord Greaves, that it has his support. He took us down memory lane to the years when a rent collector would go round the estates on a weekly basis. The housing committee in the authority on which I served did not have every member of the council on it. It was seen as a committee for senior members and it was about 10 years before they would let me near it.

There are various forms of tenancy fraud but this Bill concentrates on the unlawful subletting of social rented housing. The scale of this tenancy fraud is difficult to measure but, as we have heard, the Audit Commission’s updated figures now show that social landlords have lost control of some 98,000 properties. The original estimated cost to the Exchequer of £900 million will obviously have grown since. We know that it is a particular problem in London because high private sector rent levels provide an opportunity to make significant profits. However, it is a problem which is by no means limited to London.

There are, of course, current civil remedies available to landlords through repossession action and recovery of unlawful profit. Some councils have sought to use the Fraud Act, although there remains some doubt about its general applicability in cases of tenancy fraud. There was a major national crackdown in 2009 involving some 150 councils and specific additional funding has been committed by this Administration to tackle the problem. While increasing numbers of tenancy fraud have been identified and challenged, the crackdown has come nowhere near eradicating the fraud. More needs to be done and the measures in this Bill will make an important contribution to the effort.

As we have heard, the Bill includes the creation of new criminal offences of unlawful subletting by assured and secure tenants in social housing; the power for local authorities to prosecute; the ability for courts to order the recovery of any profit from unlawful subletting; and a restriction on assured tenants who sublet regaining their security of tenure.

We should remember that the primary victims of tenancy fraud are those individuals and families on the waiting list and in temporary, often substandard, accommodation who are denied the opportunity to access decent affordable housing. The public purse also suffers because the cost of supporting those denied will inevitably be greater than supporting them in affordable housing. However, increasingly, restrictions on housing benefit will mean that tenants denied access to affordable housing will have to pick up part of this tab themselves. With some 2 million estimated to be on a waiting list for social housing already and the collapse in new social housing starts, the leakage of even 50,000 properties—now estimated at 98,000—from the system should not be allowed to continue

These new criminal powers will undoubtedly assist in providing another route to landlords gaining possession but will, as importantly, also act as a deterrent. The two-tier approach for both secure and assured tenancies, with offences involving dishonesty carrying higher penalties, will reinforce this. We support the exclusions in Clauses 1 and 2, particularly those relating to domestic violence. We also support the provisions in the Bill for the court to make an unlawful profit order, the proceeds of which can flow to the landlord. The maximum payable under these provisions is the amount of rent receivable by the offender less any payments—rents and service charges—payable to the landlord. However, I have a question about how the tax system will fit into all of this.

The rental income receivable for the letting will be taxable, subject, of course, to deductions for rent paid to the landlord. Presumably it would be for the court to take account of this in evaluating any unlawful profit, but it is quite possible, of course, that somebody involved in unlawful subletting would not be rushing to file a self-assessment form. How is it intended that information relating to informal subletting will be shared with HMRC? Noble Lords will be aware of the provisions in the Welfare Reform Act which restrict housing benefit for tenants of social housing when they are deemed to underoccupy their home. We have made clear on numerous occasions, as indeed has this House, how much we deplore this pernicious legislation. However, my point in raising it this morning is not to revisit these arguments, which we will continue to pursue on other occasions, but to examine a related point, the one touched upon by the noble Lord, Lord Greaves.

The Government have suggested that one of the ways a tenant might mitigate the loss of benefit is to sublet a room or take in a lodger. Of course, there are strong reasons why such a course of action would be inappropriate for many families, but for those who might consider it we need to know that there is nothing in the Bill which would make it more difficult to do. It is understood that secure tenants, which includes most council tenants, have a statutory right to take in a lodger. Both secure and assured tenants will need their landlord’s permission to sublet. It seems clear that for secure tenancies, subletting would not create an offence if the written permission of the landlord is obtained, but the drafting in respect of assured tenancies is different and does not seem to allow an exemption even when the landlord gives written permission. Doubtless there is a good reason for this drafting, so perhaps the Minister will explain what it is.

The power to deal with tenancy fraud is one thing; what is as important is the ability to identify and detect cases. The government response to the consultation on social housing fraud indicates support for the creation of a mandatory gateway to require certain bodies to provide relevant information to facilitate detection and prosecution of tenancy fraud. We support this. That response indicates that work on this is being undertaken across government and that the Government will bring forward legislation when the right opportunity arises. Perhaps the Minister will indicate when this might be. Is it intended that this be done utilising the regulation-making powers in the Bill, or otherwise?

There has not been much focus at the other end, although it has been touched upon today by the noble Baroness, Lady Eaton, on the position of tenants to whom property is sublet fraudulently. Clearly, a consequence of the Bill will be that they have to give up possession, and presumably thereafter have to seek alternative accommodation, presumably in the private sector. However, in so far as they have a right to access social housing, can it be confirmed that no detriment will arise for them if they have not been complicit in the fraudulent subletting? Indeed, what if they have? Tenancy fraud is a serious issue and the Bill will help to tackle it, but we must not allow that effort to stigmatise the overwhelming majority of tenants who properly occupy social housing, who strive to pay their rent and be good neighbours.

In conclusion, this is a worthy Bill, we thank the noble Baroness, Lady Eaton, for taking it forward and we trust that it will have a speedy passage on to the statute book.

My Lords, I, too, thank my noble friend Lady Eaton for bringing the Bill to this House and my honourable friend Richard Harrington for having taken it through the House of Commons. As the noble Lord, Lord McKenzie, has said, it is an important Bill: it may have a small number of clauses but its effect is very serious indeed. I am happy to confirm that the Government have been very pleased to support it through the House of Commons and will continue to support it here. This is a Private Member’s Bill and noble Lords will know that it is up to the mover to respond to questions, but I think it is appropriate for me to say at the outset that we want to see this legislation introduced as soon as possible.

As other noble Lords have said, social housing fraud is a stain on our communities. It causes substantial financial loss and damage, especially to those who are stuck on a waiting list and in desperate need of housing: it denies them that opportunity. Introducing measures to reduce the number of homes occupied by those who are cheating the system and who often make a substantial profit in doing so, as my noble friend Lady Eaton said, is, by the sound of it, something that the whole House is going to endorse and I am grateful for that. We cannot ignore the financial cost. To replace social homes that are being unlawfully occupied, to house those who are being denied a property by tenancy fraudsters, would cost several billion pounds. We already know that we need to build a very substantial number of new houses to meet the demand anyway.

The Government have worked with local authorities and housing associations over the past couple of years to help them recognise that fraud is taking place and to deal with the problem. In 2010, as the noble Lord, Lord McKenzie, said, grant aid to local authorities of £19 million over four years was announced, as well as the Government funding a team at the Chartered Institute of Housing to help increase expertise and spread good practice. Both these factors, as well as a number of conferences, which I hope that I helped at, have raised the profile of this issue and, importantly, increased the number of homes recovered for reallocation to those in genuine need. The Audit Committee has estimated that 1,800 local authority properties have been recovered in the past year, but noble Lords will recognise that that still leaves a substantial number.

My noble friend Lady Eaton touched upon the importance of increasing landlords’ ability to access data: that is another matter that has been raised by the two noble Lords who have spoken. Those data should be available when investigating social housing fraud and I am very pleased that the Bill contains regulation-making powers to this end. The Government are, of course, committed to introducing the appropriate safeguards alongside any enhancement of landlords’ powers in this area. Of course, access to data will be limited, as one would expect.

Social landlords should be able to make best use of their stock in a way which satisfactorily meets the needs of their local area. Cutting down fraud is a key part of ensuring that this happens. Many landlords have stepped up their efforts and are now giving this matter the attention it deserves, but it is only right—I do not know whether there has been an oversight up to now—that there is proper legislation to support their work, as well as criminal procedures and penalties. That is what has been missing in order to underline the seriousness of this matter: they have been civil penalties up to now.

I was asked a couple of questions, but noble Lords will know that it is the mover of a Private Member’s Bill who answers those. I shall therefore not steal my noble friend’s thunder; I reiterate that we support what she says, and I am grateful that, so far, the House has indicated that it supports it too.

My Lords, I thank most sincerely the noble Lords, Lord Greaves and Lord McKenzie of Luton, and my noble friend Lady Hanham, who have so kindly contributed to the debate on the Bill. I am delighted that there is support for the proposal that this Bill should reach the statute book speedily. I was very interested in the comments of the noble Lord, Lord Greaves, about the changing scene in landlords and social housing. Having cut my teeth as a new councillor in the field of housing, I realise what a different arena it is some 28 years on. We now have large landlords who often stretch across a number of authorities and into the regions. It is very different from the days when someone could walk around the streets and know precisely who lived in each house.

The noble Lord asked about prosecuting tenants who may have sublet their property. My understanding is that whether subletting is allowed or not is normally made very clear in the tenancy agreement. In the Bill we recognise that it is the landlord who will decide whether to prosecute. It is expected that criminal sanctions will be used only in the most serious cases of deliberate attempts to defraud. If the activity of subletting has been allowed, it is understood that that would be taken into account in any course of action that the landlord may wish to take.

The question on tax from the noble Lord, Lord McKenzie, was most interesting. Because of the expectations of self-certification, I will need to take further advice and write to the noble Lord on that point. However, it is a valid question given that one of the main thrusts of the Bill is to save the public purse from fraudulent behaviour. I will make sure that these points are addressed. I am also pleased to note that the Government are working closely with the housing sector, and indeed my noble friend Lady Hanham mentioned the Chartered Institute of Housing. The Local Government Association is working to ensure that, as far as possible, tenants will be aware of the new arrangements and there is an expectation that landlords will make the implications of any new legislation clear to tenants.

Again, I thank all noble Lords for their contributions.

Bill read a second time and committed to a Committee of the Whole House.